Analysis: NUE

As another reminder, there will be no Daily Rundown today. Videos will resume Friday.

Nucor (NUE) provided its mid-quarter update earlier this morning and guided to third-quarter earnings well above consensus estimates. In the press release here, the company said it expects third-quarter earnings in the range of $7.30 to $7.40 per share, which is well above the consensus estimate of $6.60. Nucor's third-quarter guidance range also represents significant growth over the $5.04 record set in the second quarter.

Nucor said all three operating segments continue to generate robust profitability as overall demand remains strong across most end-use markets. Steel mill earnings are expected to significantly increase quarter over quarter, mainly due to higher prices. Margins within the steel products segment are expanding thanks to higher average prices. And the raw materials segment is expected to post similar results to the second quarter, excluding an impairment charge recorded in the second quarter.

In addition, Nucor said it repurchased 6.7 million shares in the quarter at an average price of $105.58 per share. In total, Nucor has returned nearly $2 billion to stockholders via dividends and buybacks, and we believe this trend of significant capital returns can continue. Here is the reason why: Nucor's balance sheet is already pristine, so they do not have to pay down debt, and capital spending is expected to fade in 2023. This all allows for a large chunk of that earnings power and robust free cash flow generation to return to shareholders.

Looking ahead, Nucor said its internal business units' forecasts suggest that its fourth-quarter 2021 results "are likely to continue the trend of exceptional performance we have seen so far this year." It's hard to tell by this language if the fourth quarter will be another record, but what's for certain is that Nucor's earning power isn't going away anytime soon. Because of this and the fact that the price of steel has remained incredibly resilient at its highs, we think there is upside to the current fourth-quarter consensus EPS estimate of $6.21.

So why is the stock down this morning?

We have an angry market right now, and the seasonally weak period is showing off its strength this morning despite the better-than-expected August retail sales report. And despite Nucor's consistent beat and raise, beat and raise cadence this year, there is always the concern that things are as good as it gets for the steelmakers. However, if Nucor's forward earnings estimates are upwardly revised yet the stock price is trading lower, the only thing it means is that the stock is truly getting cheaper.